In 2010 two laws revised the 1099 requirements effective for payments made after 1/1/11 ( 2012 tax year)

The 2010 Small Business Act extends the 1099 requirement to all rental property owners. Prior to 1/1/2011 small rental property owners were exempted from the aw. It appears very unlikely that this provision will be reverted.

Efforts to repeal the 1099 reporting provision in the Obama Health Care Bill fails. Bad news in many respects for small property owners and businesses.

Owners who are unaware of the new 1099 provision will either get caught up in the whole ‘your contractor is a statutory employee’ argument or lose legitimate deductions for work performed. If you are not up to speed on the problems you can face by improperly classifying what the government considers an employees that you are treating as a contractor read this post

I am being told that you may even have to file a 1099 on your local government for services like sewer, water and trash collection or lose those deductions.

This will be a HUGE paperwork nightmare even for those of us that only use regular employees for our maintenance. I can hear hectares of tress falling in the background to make the paper that will be needed even as I write. But at least this will solve unemployment as it will take a heck of a lot of people to process the billions of 1099s this will generate. And jobs that are simply shuffling papers add nothing to the productivity of our nation, putting us another step behind other countries as we vie for market shares in a down economy.

From the National Apartment Association

1099 Repeal Effort Fails

Efforts to include a repeal of onerous new 1099 reporting requirements enacted in the health care reform law (P.L. 111-148) were unsuccessful.

Starting in 2012, businesses will be required to file a 1099 report to every business from which it purchases more than $600 in goods and services. (Prior law restricted the reporting requirement to the purchase of $600 or more in services only.) See my note below* –Tim

Despite bipartisan agreement that the provision should be repealed, there is no agreement over how it should be paid for. As a result, repeal provisions were not included in the tax bill and is not expected to pass before the lame-duck session adjourns. Lawmakers are expected to take up the issue early in the 112th Congress, and NAA/NMHC will continue to aggressively advocate for repeal.

*More accurately the old law also excluded services performed by corporations. The new law includes all services and purchases over $600 per year per vendor. This greatly increases the number of 1099s required. Also most smaller property owners were exempt under the old law, Not so now. If you own a single home that you rent you are subject to this.

Worker Comp insurance is important as your homeowner’s policy does not cover people working on your property.

More importantly the tax implications if a contractor is reclassified as an employee.

Why is the tax issue more important than the workers comp? You can and should have a worker comp policy even if you feel most of your worker bees are contractors. So go out, get it and sleep well.

Now onto the consequences of a contractor being reclassified as an employee for tax purposes. A number of years ago we had a lady who cleaned carpet for us. She had her own machine. She used her own chemicals. She charged a fixed rate based on the number of rooms. She had a number of other clients at the time we started using her. We found her through an ad she ran in the Shopper. And she set her own schedule.

Well she also had a full time job and was laid off after she began doing our carpets. She did not earn enough at the full time job to get the top unemployment benefit so she decides to include the earners from carpet cleaning to up the benefit. The state ruled that she was an employee based on the following: She never filed taxes for the carpet cleaning income. She did not have a FEIN. At the time she was laid off we were her only remaining client. And ONE time we told her a job absolutely positively had to be done on a certain date. Well had I hired Adelman to clean the carpets I would have told them the same thing on that job.

Over a six month time period we paid her a bit over $400 for doing a dozen carpets. The penalties and taxes we had to pay due to the reclassification were a bit over…$400.

You would have thought the government would have shown us some consideration as we had fifty some payroll employees that year, so clearly we were not trying to skirt the law. But they use a 21 step test. Fail an important one, or a few lesser ones and the person doing the work is an employee.

But $400 was a cheap lesson I guess. Earlier this year I spoke to an AASEW member and part time landlord who is fighting $20,000 in penalties. Just last week I spoke to yet another part time landlord who is facing $60,000 in penalties due to reclassification of his “contractors” to employees. If you get this wrong and don’t file the proper employment tax forms the government can look back for something like six years.

And calling your workers contractors is became much more risky with President Obama’s signing of a new 1099 provision into law this week.

Today, unless I can find you in the Yellow Pages and you want to work for us it will be as an employee.

Disclaimer

I am "just a landlord," NOT an attorney or accountant. If you need legal advice, tax advice or have appendicitis, don’t rely on something you read on the internet and do it yourself. Rather, hire a competent professional.